According to economists at Canada's biggest banks, the country's inflation rate cooled for the second month in a row in August and is expected to fall again in September.
The anticipated decline comes as global supply chain disruptions are beginning to ease and lower commodity prices are working to cool the consumer price index. The recent burst of inflation is thought to have peaked at 8.1 per cent in June.
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The team warned that some core prices will not likely peak until later in the year.
The economists wrote that food price growth probably accelerated again. We look for the rate to hold steady. The Bank of Canada has preferred core inflation measures.
The Bank of Montreal's chief economist, Douglas Porter, warned that like the U.S., which had recently reported a hotter than expected annualized rate of 8.3 per cent in August, Canada should beware the core trends.
Porter wrote in a note to clients last week that a weaker currency could fuel consumer goods. Canadian grocery prices have been less fiery than in the U.S.
The chief economist of the Canadian Imperial Bank of Commerce said that the difference in how shelter costs are treated in Canadian inflation figures should cause cost pressures to fall faster than in the U.S.
Since the price of goods is driven upward by some supply chain issues and domestically driven services inflation is expected to peak in the second quarter of next year, core inflation won't dip below three per cent until the second half of next year.
There are still risks on the horizon despite the common belief that high inflation is not here to stay. The wage-price spiral is a trend where workers seek higher wages to keep up with rising living costs and can cause high inflation. The recent success of the U.S. railway unions in avoiding a strike is an example of upward pressure on wages. The gains may not cause unit labour costs to go up as they have in the past, but they still pose an inflation risk that economists and central banks are keeping an eye on.
With a couple of years to run, the concerns are that this is a five-year package that averages close to five percent per year in wage hikes. Businesses are starting to assume that inflation will persist at elevated levels, making it harder to winnow inflation down.
The Canadian Federation of Independent Business hosted a video session with the Bank of Canada governor. Macklem told the small business community not to plan for continued high inflation.
The comments sparked backlash against the head of the central bank, with some unions suggesting that Macklem should stay in his own lane.
He probably meant to say that employers shouldn't assume that we'll have higher inflation in the future. Under the assumption that they will be able to raise their prices, they should be careful about locking themselves into pay gains, particularly in multi-year contracts.
It is more likely that high inflation will prompt workers to ask for higher wages or seek higher paying jobs in order to stay ahead of rising costs.
The key to avoiding a self-sustaining price-wage-price spiral is cooling the economy and getting inflation down. It isn't about telling workers that they shouldn't try to keep up with the costs of living.
The August inflation data is expected to be released on Tuesday. It's time to est.
The email address is shughes@postmedia.
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